Tesco set for multibillion loss

Published: Wednesday 22nd April 2015 by The News Editor

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Tesco is expected to report a multibillion-pound annual loss today as it undergoes the latest phase of its shake-up under new boss Dave Lewis.

Britain’s biggest supermarket will post its first yearly figures since Mr Lewis was drafted in to turn around its fortunes following a series of profit warnings amid a ferocious price war with rivals.

They are expected to show trading profits falling by 58% to £1.4 billion, their lowest level for more than a decade.

Analysts also foresee billions more being subtracted from the group’s bottom line as it writes down the value of its properties by around £3 billion as well as facing up to a pension fund deficit swelling to as much as £5 billion.

Experts at Barclays have pencilled in a statutory pre-tax loss at around £2.9 billion with Shore Capital estimating around £3 billion while some reports suggest losses could be as high as £5 billion.

Shore’s Clive Black said: “At a statutory level, it’s going to be a horror show. But, for shareholders, it is about Dave Lewis and the future.”

Shares fell to a low of 155.4p in December but have since added about 50% as Mr Lewis has laid out a series of major plans to revive Tesco’s fortunes.

Bernstein’s Bruno Monteyne expects the latest results to show Tesco’s decline in sales narrowing in the fourth quarter.

He said: “Dave Lewis has regularly surprised us with how quickly he has moved since taking over: dealing with the accounting crisis, getting Tesco ready for a good Christmas period, starting the cost savings with aplomb.”

But the profit numbers will be a far cry from results in recent years which saw Tesco’s annual trading profits near £4 billion, before sales went into an alarming slide under Mr Lewis’s predecessor Philip Clarke, who departed last year.

Tesco has been caught up in a price war with rivals Asda, Sainsbury’s and Morrisons as their market share is gnawed away by discounters Aldi and Lidl.

Since the arrival of former Unilever executive Mr Lewis, it has announced the closure of 43 loss-making stores as well as shelving plans for a further 49.

The group has shut its final salary pension scheme and sold its loss-making blinkbox online video operation. It also plans to save £250 million a year by shutting its headquarters in Cheshunt and has said it will not pay a final dividend this year.

Tesco has recruited former Dixons chairman John Allan to head its board to succeed Sir Richard Broadbent, who left after the discovery last autumn of a £263 million accounting blunder, now being investigated by the Serious Fraud Office.

Analysts will be looking for further moves by Mr Lewis including the possible sale of £1.5 billion-rated dunnhumby, the customer data company behind its Clubcard loyalty scheme.

It is argued that Tesco needs to sell assets or place shares to raise more cash.

Borja Olcese of JP Morgan Cazenove said: “We find it difficult to believe that Tesco can continue to drive volumes, improve margins and pay down debt simultaneously without raising capital.

“The most obvious solutions Tesco could opt for in order to strengthen its balance sheet are … either in the form of asset disposals or a potential share placing.”

Published: Wednesday 22nd April 2015 by The News Editor

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